ISLAMABAD, April 7: The Asian Development Bank (ADB) has forecast a 7.3 per cent GDP growth rate for Pakistan in 2006-7 and says the country would achieve only 6.3 per cent growth rate in 2005-6 mainly due to slow agricultural growth.
“South Asia’s growth is expected to moderate to 7.3 per cent in 2005-6 as a result of some slowing in India and Pakistan, but then will rise slightly close to 7.5 per cent in 2006-7,” according to an ADB report released on Friday. The region grew 7.8 per cent in 2005.
Pakistan, it said, grew 8.4 per cent in 2004-5, its fastest rate of growth in the past two decades, but inflation also pushed higher and the current account slipped from surplus to deficit.
The government had set a GDP target of 7 per cent for 2005-6 which was later revised downwards to 6.5 per cent. But now government officials concede that GDP growth would be between 6 and 6.5 per cent during the current financial year.
However, the ADB is hopeful that Pakistan will achieve a 6.5 per cent growth rate which will pick up to 7.3 per cent during the next financial year.
The ADB also believes that the tightening of monetary policy is expected to bring inflation down to 8.5 per cent this year and to 7.6 per cent in 2006-7.
The medium-term outlook was favourable for growth in the range of 6 to 8 per cent for Pakistan, assuming continued robust performance in economic management, greater investment to ease infrastructure bottlenecks, continued security and political stability, the ADB added.
Average inflation for the region in 2005-6 is expected to increase to 6.1 per cent as removal of subsidies on some petroleum products in a number of countries boosts domestic prices. Most countries are projected to see somewhat larger current account deficits with the regional average projected at 3 per cent of GDP.
At the launching of the 2006 edition of ADB’s annual economic publication, the Asian Development Outlook, the bank’s chief economist Ifzal Ali said: “Evidence is growing that South Asia is moving on to a higher growth path. But future growth will require progress on reforms across the region.”
Focused investment aimed at breaking infrastructure bottlenecks in key economies will also open the door to stronger growth in the medium-term, he said.
India’s growth has averaged more than 8 per cent over the past three years driven by broad-based domestic demand and expansive business dynamics. GDP is projected to grow 7.6 per cent in the fiscal year 2006 and 7.8 per cent in the fiscal year 2007 as consumption and investment demand are slightly held back by price adjustments to reduce domestic petroleum subsidies and somewhat higher interest rates. India faces two key policy challenges as it continues its structural transformation.
First, it must maintain consolidation of its fiscal position while ensuring spending on infrastructure improvements to support industry and services development, and investment to advance rural productivity and human development. Second, it needs to improve the investment environment by lowering the cost of doing business.
